Episode 8: Leading and Lagging Indicators
I appreciate your time again this week on “Around with Randall.” Today’s topic is the difference between leading and lagging indicators. This concept of leading and lagging measurements is not new to the world. However, it's something I don't hear very much about in philanthropy and something I talk a lot about with my clients.
So let's start with just kind of the definitional pieces in case maybe you're not as familiar with it. The idea of a leading indicator is looking at measurements, metrics of things that are occurring at that moment that are more predictive of what's going on and to happen. What might happen?
Lagging indicators are things that are done in retrospect. They look at and measure what's actually occurred. So the first time that really the study or the, or the history, of leading and lagging indicators came about was in economics. And they used it to better predict the next several months or even up to a year of economic activity.
And leading indicators in the economy could even be a warning signal of trouble to come. So let's talk about it for a second. Leading indicators and economics could include things like manufacturing, output, uh, stocks or housing markets. Possibly consumer confidence, how people feel about things, or even the number of new businesses entering the market, while they're not a true correlation…these things are good. So that means the next series of things are going to also be good. The result of the economy, in this case, they are an indicator of what probably, or most likely is going to happen. And if you use historical data on top of it, you can begin to look at where the general direction is going.
Leading and lagging indicators are used in all kinds of ways in the for-profit world. So in terms of safety, OSHA uses it to predict and kind of figure out where they think businesses might have trouble regarding future accidents because they're regulating safety in the workplace and they look at things like reports and, and what they think of as an incident report or a series of them, or have there been complaints in aerospace. It’s things like, in terms of profitability waste, when you make something, is there excess waste or the number of hours that it's taking, or the planning that goes into it?
Leading and lagging indicators are a terrific way of evaluating your process. So how does this apply to philanthropy? Well, I've been using this for two decades as a way of helping gift officers and more importantly, organizations, better understand what they're trying to accomplish.
So let's talk about leading. Because it's the thing we talk about, the least leading indicators are things like how many new qualification calls a gift officer's making. How many new referrals have come in? Where did they come from? How many introductions are being made to new potential prospects? While not again, a direct correlation one-to-one, if we have this many introductions, we have this many gifts, it is an indicator of what activity or a result is going to be in the end. What our industry has concentrated on for years and years and years are more lagging indicators. And there's really one that dominates the scene. How much money have we raised? How much money have you raised as a gift officer? And the thing about lagging indicators is, is that they don't allow for correction because they're a marker of the history or what's already happened. Leading indicators, give us the opportunity for improvement. If we see a hole or a pattern that's not successful, we can adjust.
So let's take an example. If you are a newer gift officer to an organization and your portfolio isn't as ripe or as robust as one would want, then there's probably a pretty good chance a good leading indicator is how many referrals or introductions are you getting Where are you getting new prospects in health care That's probably grateful patients - a really likely option in any sense or area of the nonprofit world - or board referrals or annual fund elevations. But you can begin to look at a leading indicator and better understand if the gift officer's going to struggle either the rest of this year or into next year, depending on what the weaknesses are for each individual fundraiser.
Part of leadership is being able to help your people, your group, you, people you manage, the people you're supposed to be leading, to be successful. And that's why I like leading indicators. I've been so fortunate in my career to always be a Chief Development Officer. And the more I learned about leading indicators, the more I could help my team be successful, help them plan their year, help them feel successful, help them, where there are holes when they can't help themselves or don't see the hole.
Leadership should be about ensuring and helping the success of the team, which benefits the entire organization or the department, but it should be done on an individualized level because everybody has different situations, different holes, different problems, different challenges. Leading indicators, measuring them, can greatly create awareness and heighten the sightlines of those problems.
I'm working with three or four clients currently, and really putting a lot of pressure is probably the wrong word, but I talk about it a lot with them about leading and lagging indicators. And what's happened in the last couple of years is that these leading indicators have greatly enhanced their ability to help their gift officers be successful. And I deserve none of the credit. The credit goes to the leadership, to those Chief Development Officers and managers who are embracing this kind of thought process. But literally, as we plan a year out or help a gift officer plan their year out there certainly is the biggest lagging indicator as a part of the conversation, how much money to be raised.
But what I focus on is okay, if we know the goal is a million dollars, let's say, how do we build a gift pyramid? For that million dollars, who are the names in that gift pyramid, and then which leading indicators do we need to monitor to make sure they get to their goal? And what's happened is in a number of situations three, four months in by monitoring the leading indicators, you can see that they are going to have trouble getting some people are going to have trouble getting to their end result. And if you only concentrated on the million dollars, you'd only be worried about it at the end of the year, but the leading indicators gave us a chance, particularly the Chief Development Officer, and a couple of cases of managing a kind of a gift director in, in another, to be able to three, four months in to say, Hey, wait a minute, these don't look like you want, or I want, how can we help you get to that final result? And we can do course correction. And in the end, that’s what leadership should be about. And as a gift officer, they're so appreciative because somebody is hoping them to be successful, to help them guide them, educate them on how they can make a difference for the nonprofit they're working for, for the mission.
And so, as we do in every episode, let's talk about the tactical. What can you do with this information? So if you're a gift officer, what are the leading indicators you want to look at that are going to help you? Be successful this year or next year. And that may require a conversation, but I give you a few to think about. We’ve already talked about them:
How many referrals are coming in?
How many calls are you making?
When are you getting your proposals out? I always marvel with gift officers who wait until the last three months to get their proposals out. And then they wonder why they didn't close. And I'm like, why aren't you, if you know, you're going to ask them, prepare yourself to ask them in the first six months or near the end of the first six months of the fiscal year, and then use the last six months to try to close them.
Are you getting your actions into Ari?
Are there proposals in the leading indicators?
If you're the leader, if you're the manager, if you're helping someone else, are you sitting down at the beginning of the fiscal year beforehand and really driving this conversation? What do we want to measure?
I've got two organizations I work with that are just spot on with this. I give them a lot of credit. They sit down, they actually have goals of conversion rates on the leading indicators. How many referrals come in, but how many of those referrals turn into phone calls? How many of those phone calls turn into qualification visits? How many become people become qualified? And they're setting goals for the entire department or foundation in each one of those intervals. So as an example, if there are ten referrals, seven should result in some type of conversation of those seven three, and a half or 50 percent should become a qualification visit, and two out of those three should become qualified prospects, meaning we're going to ask them at some point. Now do they have all the data historically to make sure those numbers are accurate in terms of measurement? No, but are they measuring the right things? Yes. Is that beginning to open up communication and conversation with the gift officers to ensure they know that they can be successful? Absolutely.
So as a leader, you want to make sure that you and the people you're supervising are building these leading metrics, leading indicators, these metrics together and then finding the right way to track them, and then sitting down regularly and saying how you're doing. There's nothing more frustrating for the gift officer or the leader to get to the end of the year.
And literally, no one can figure out why they didn't make their goal for the first, second, or third year in a row. That's a failure of leadership. It's a failure of preparation. And even during COVID. The organizations that have monitored and pushed leading indicators have taken care of 2020 in a much better way, but are truly set for success in 2021.
So the tactical is to start talking about leading indicators. If you're the gift officer annual giving a major gift, does it make a difference? What are you leading with? And then building out communication between that area and the chief development officer or the supervisor to ensure we're having regular conversations about them.
As always I want to remind you about the website, that's www.Hallettphilanthropy.com … two L's two T's www.hallettphilanthropy.com. We'll take your emails as well. If you have a concern complaint, that's reeks R E E K S at reeks@hallettphilanthropy.com, or if you have a question or want to make a recommendation for a show topic that's podcast@hallettphilanthropy.com.
We're closing out on 2020 here. And I want to say thank you to those that are listening and sending in emails.
So reading the blogs, which are also on the website, good 90 second read two or three times a week on kind of the world in our profession. I want to thank you. It has been a fun start to this process. I enjoy doing this. I hope there are those listening that are finding it of value, but I also want to remind you as I do each and every week, this is a noble cause of vocational call to want to help people. That's what philanthropy is all about. It's about making sure we don't leave people behind - that could be in health care, that can be in education, that can be in social service, that can be in the arts. What are we doing to make our community and our world a better place?
And I always come back to my all-time favorite saying, “There are some people that make things happen. Some people watch things happen. And then there are those who wondered what happened.” Life's about being in one of those moments at any one time. And the great thing about what we do, the great thing about nonprofit work is we are people who want to make things happen for, on behalf of, and to help those who are wondering what happened.
And I don't know of a better way to spend a professional career making a difference. And I hope you feel the same. We'll see you next week here on Around with Randall and remember make it a great day.